LIZ CLAIBORNE INC. $15 (New York symbol LIZ, Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 94.8 million; Market cap: $1.4 billion; WSSF Rating: Average) designs a wide variety of clothing and accessories for men and women. It sells its products mainly through department stores, as well as its own retail stores.
The company now plans to sell or discontinue 16 of its roughly 40 brands as part of a major restructuring.
Besides lowering costs, this plan will free up more cash to invest in brands with better long-term growth prospects. It also plans to expand its own retail operations, which will cut its reliance on department stores.
In the second quarter of 2008, earnings before onetime items dropped 60.9%, to $0.09 a share from $0.23 a year earlier. However, the latest earnings exceeded consensus forecasts of $0.05 a share. Sales fell 7.3%, to $973.8 million from $1.05 billion. Sales through traditional department stores fell nearly 30%. However, sales of brands that appeal to younger shoppers, such as Juicy Couture, rose 18%.
Long-term debt of $811.3 million is a high 60% of the company’s market cap. It also holds cash of $100.4 million ($1.06 a share).
Liz Claiborne now feels it will earn between $1.40 and $1.50 a share in 2008, down from its earlier range of $1.40 to $1.60. The stock trades at just 10.0 times the midpoint of the new range.
Earnings should expand over the next year or so as the company realizes more of the benefits of its recent restructuring. The $0.225 dividend looks safe, and yields 1.5%.
Liz Claiborne is a buy.
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